Ready for higher gasoline taxes? Road projects may come to a halt without it

By Kent Hoover
As the needle gets close to empty on the Highway Trust Fund, two senators have proposed an old-fashioned way of refilling it: raise the federal gasoline tax.

Sen. Bob Corker, R-Tennessee, and Sen. Chris Murphy, D-Connecticut, have proposed a 12-cent increase in the federal gasoline and diesel tax over the next two years, and then index it for inflation. This would generate an additional $160 billion over the next decade, which would fill the gap between what would be raised under current gas tax rates and the cost of federally funded transportation projects that are already planned.

The federal Highway Trust Fund provides more than half of the money spent on road, bridges and transit projects in the U.S. Without any action by Congress, it’s projected to run out of money sometime this summer, which could force a halt in projects already under way.

The gasoline tax hasn’t been raised since 1993, so maybe it’s time for an update. Plus, it seems fair to make users of the nation’s road pay for improvements. Congress has violated this principle for the past couple of years, taking $50 billion from the federal government’s general fund — thereby raising deficits — to make up for shortfalls in the Highway Trust Fund.

But is America ready for higher gas taxes at a time when prices at the pump are going up? The average national price for a gallon of regular gasoline hit $3.67 on Wednesday, the highest price for June 18 in six years, according to AAA. Civil war in Iraq could push prices even higher this summer. Typically, gasoline prices peak in the spring.

Corker, however, thinks it’s time to bite the bullet.

“If Americans feel that having modern roads and bridges is important, then Congress should have the courage to pay for it,” he said.

“I know raising the gas tax isn’t an easy choice, but we’re not elected to make easy decisions – we’re elected to make the hard ones,” Murphy said. “This modest increase will pay dividends in the long run and I encourage my colleagues to get behind this bipartisan proposal.”

Raising the gasoline and diesel tax is supported by some business groups, including the U.S. Chamber of Commerce, but influential conservative groups such as Americans for Tax Reform and the Club for Growth oppose it.

“The highway trust fund does not have an under-taxing problem,” ATR contends. “It has an overspending problem. There is no good reason to raise the gas tax.”

The organization, led by Grover Norquist, said the Highway Trust Fund’s problem is that the Davis-Bacon Act, which requires contractors on federally funded construction projects to pay locally prevailing wages, “drives up the cost of construction by 25 percent or more, and much of the gas tax money paid by drivers of cars and trucks is siphoned off to pay for mass transit.”

Corker and Murphy propose offsetting the cost to consumers of higher gasoline taxes by cutting taxes elsewhere, but ATR dismisses those offsets as “vague and uncertain,” compared to the “certain and permanent” increases in the gas tax.

Meanwhile, senators have floated other proposals to rescue the Highway Trust Fund. Senate Majority Leader Harry Reid, D-Nevada, and Sen. Rand Paul, R-Kentucky, have suggested that money for highways be raised by giving an temporary incentive— dramatically lower tax rates on repatriated income — to multinational corporations that bring home profits earned overseas.

The Business Roundtable, which represents America’s largest corporations, thinks using a repatriation holiday to finance roads a terrible idea. In a letter to the Senate Finance Committee and the House Ways and Means Committee, the organization said it “strongly opposes the use of business tax increases for unrelated spending that will divert revenue needed for comprehensive tax reform legislation.”

“Congress faces two immediate issues that need resolution – highway trust fund financing and tax reform to improve economic growth and job creation,” the letter states. “We recognize that permanent tax reform cannot be enacted in time to resolve the short-term funding difficulties of the highway trust fund. However, any resolution to the highway trust fund problem should not make permanent tax reform even more difficult to achieve.”

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